Barrick Gold Remains a Strong Pick

Barrick Gold (ABX) expects its all-in-sustaining-costs to decrease additionally by 14.2% in 2016 as compared to 2015 level. This improvement in the all-in-sustaining-costs, along with improved efficiencies and productivity, and maintaining strict capital discipline should accelerate its cash margin going forward. In fact, it is due to these strategic efforts that the company is able to improve its free cash flow that came in at $181 million as compared to negative $198 million in the same quarter last year.

Looking ahead, Barrick Gold remains high to generate free cash flow at a gold price of $1,000 per ounce in 2016.

It is a tremendous improvement in its free cash flow as the company needed a gold price of over $1300 an ounce at the start of 2015 for its cash flow to breakeven. Thus, its ability to generate free cash flow at a gold price of $1,000 per ounce should allow the company to increase its dividend going forward that remains flat at present as compared to last year.

Reducing debt

Apart from boosting cash margins and improving productivity for its assets, Barrick Gold has improved its financials. For instance, the company has retired approximately $4 billion in debt by various means such as non-core assets sales, PV stream and strong operating cash flows last year. In fact, the company during the last reported quarter reduced its net debt by an additional $842 million to $9.13 billion. The most important thing is that it remains on track to achieve $2 billion of debt reduction this year that will have reduced its net debt to $8.0 billion by the year end.

On the other side, these constant efforts of reducing the debt level have lowered its annualized interest payments significantly. For instance, the company has decreased its annualized interest payments by more than $180 million as a result of debt repayments since the start of 2015. In fact, the company plans to bring its net debt level to $5 billion from the current level of $9.13 billion in the medium term that should lower its annualized interest significantly in the future. Thus, lowering the net interest payments means the company is generating sufficient revenue to meet its interest obligations that should release additional cash to its balance sheet.

Conclusion

Barrick’s continuous focus to reduce costs along with its initiatives to improve productivity for its assets makes it attractive going forward. At the same time, the company is improving its financial position by lowering its net debt that should support its growth going forward. Thus, in my opinion, Barrick Gold remains a safe long-term play.